Borrowers urged to avoid costly fixed home loan revert rate trap
There’s been a substantial home loan rate shift in 2020 as interest rates have continued to fall and fixed home loans have emerged as the new low rate option for borrowers.
Mozo database figures show that, on average, fixed home loan rates are now significantly lower than variable rates, with the average 2-year fixed rate (2.35%) for an owner-occupier nearly 100 basis points lower than the average variable rate (3.31%).
In fact, following the latest Reserve Bank rate cut, many lenders have cut their fixed headline rates below the 2.00% mark for the first time.
While these low fixed offers will no doubt be welcomed by any borrowers who are happy to lock in a rate for the next few years, mortgage holders are being warned to watch out for the devil in the detail: revert rates.
What is a revert rate? It’s the variable rate borrowers are charged once the fixed rate period ends and, importantly, it tends to be a much higher rate.
And according to a recent Mozo analysis, the difference between fixed rates and revert rates can be substantial. Of the 2-year fixed rate loans being tracked in the Mozo database, the average revert rate was 3.49% and rates ranged as high as 5.10%.
“It’s clear lenders lure customers in with rock bottom fixed rates knowing they will make a bonanza in a couple of years time as most people won't bother to switch,” says Mozo Director, Kirsty Lamont.
“While low fixed rate offers might seem intoxicating, not many customers would be prepared for the fact they could be slugged with rates up to 5.10% when the fixed period ends.”
2-year fixed rate loans with the lowest total interest over 30 years^
Home loan | 2-year fixed rate | Revert rate | Total interest over 30 years |
---|---|---|---|
Well Home Loans - Well Balanced Fixed | 1.99% (2.17% comparison rate*) | 2.17% | $142,976 |
Tic:Toc - Fixed Home Loan | 1.89% (2.15% comparison rate*) | 2.19% | $143,366 |
FreedomLend - Fixed Home Loan | 2.31% (2.46% comparison rate*) | 2.19% | $147,105 |
Pacific Mortgage Group - Fixed Home Loan | 2.14% (2.24% comparison rate*) | 2.25% | $149,452 |
Illawarra Credit Union - The Works Fixed Home Loan Special Offer | 1.99% (2.93% comparison rate*) | 2.50% | $164,357 |
As the table above shows though, not all lenders charge revert rates which are significantly higher than the fixed rate.
But given that another analysis found that just 6% of mortgage holders had refinanced in the 12 months to June 2020, it’s likely that many Australians who do take up a fixed rate offer will be caught out in years to come when higher revert rates kick in.
As Lamont says, that inertia could end up costing borrowers a significant amount.
“The message is clear, if you don’t switch your loan when the fixed period ends you’re on a collision course with the revert rate ripoff. Failing to refinance your loan at the end of the fixed period could see your monthly repayments jump from $1,568 to $2,010 adding more than $88,997 over the life of the loan.”
RELATED: Home loan rates starting with ‘1’ pile up after RBA cut
Ready to compare a range of competitive fixed rate home loan offers? Check out the rates in the table below or head on over to the Mozo home loan comparison hub to compare more options for both owner occupiers and investors.
^Based on home loan products in the Mozo database available to owner-occupiers making principal and interest repayments on a loan of $400,000 loan with an LVR of 80% - accurate as of Nov 20, 2020. Assumes variable revert rate remains consistent over 30 years.
Compare fixed home loans - last updated January 23, 2021
Special Offer Fixed Rate Home Loan
Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment
1.99% p.a.
fixed 3 years2.70% p.a.CompareCompareSpecial Offer Fixed Rate Home Loan
Limited time 3 Year Fixed Rate Special Offer for purchase or refinance. Rate lock option available. No monthly or ongoing fees.
- interest rate
- 1.99% p.a.
fixed 3 years
- comparison rate
- 2.70% p.a.
- upfront fees
- $520
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free up to $10,000 p.a.
- Redraw facility
- no
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $50,000
- maximum borrowing amount
- $1,000,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Special Offer Fixed Rate Home Loan
UHomeLoan
Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment
1.75% p.a.
fixed 3 years2.22% p.a.CompareCompareUHomeLoan
$0 fees and easy application with the Mozo Experts Choice Home Lender Bank of the Year.^ Choose between weekly, fortnightly or monthly repayments. 3 year fixed rates are for new Owner Occupier Principal & Interest loans.
- interest rate
- 1.75% p.a.
fixed 3 years
- comparison rate
- 2.22% p.a.
- upfront fees
- $395
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free up to $20,000 p.a.
- Redraw facility
- no
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $100,000
- maximum borrowing amount
- $2,000,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- $395 Establishment fee waived for fixed rate loans that settle by 31 March 2020. Receive 1.75% Receive 1.75% 3 year fixed rate when you apply by 26 February 2021 and settle within 90 days.
Read our Mozo Review to learn more about the UHomeLoan
Basic Home Loan
Fixed, Owner Occupier, Principal & Interest, LVR 70-80%
interest rate
comparison rate
Initial monthly repayment
2.19% p.a.
fixed 3 years2.53% p.a.CompareCompareBasic Home Loan
Flexible loan structure – create up to six loan accounts with different rate and repayment types. Free redraw from your loan using Macquarie Online.
- interest rate
- 2.19% p.a.
fixed 3 years
- comparison rate
- 2.53% p.a.
- upfront fees
- $0
- Ongoing fees
- $0.00
- Discharge Fee
- $400.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $150,000
- maximum borrowing amount
- $750,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Basic Home Loan
Fixed Home Loan Special Offer
Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment
2.19% p.a.
fixed 3 years3.03% p.a.CompareCompareFixed Home Loan Special Offer
No monthly account keeping fees & No loan establishment fee. Get up to $3,000 cash bonus when you refinance with an eligible Suncorp Bank Home Loan. T&Cs & eligibility criteria apply.
- interest rate
- 2.19% p.a.
fixed 3 years
- comparison rate
- 3.03% p.a.
- upfront fees
- $0
- Ongoing fees
- $375.00 yearly
- Discharge Fee
- $350.00
- Extra repayments
- yes - free up to $500 per month
- Redraw facility
- no
- Offset account
- no
- Maximum loan to value ratio
- 90.00%
- minimum borrowing amount
- $150,000
- maximum borrowing amount
- -
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Fixed Home Loan Special Offer
Discount Fixed Rate
Owner Occupier, Principal & Interest, <80% LVR
interest rate
comparison rate
Initial monthly repayment
1.99% p.a.
fixed 4 years2.90% p.a.CompareCompareDiscount Fixed Rate
Have the certainty of fixed repayments with a competitive rate from BOQ. Flexible repayment options available and make up to $5,000 in additional repayments annually. $3,000 cashback when you refinance your home loan to BOQ (min. $250k lending, max 80% LVR, T&Cs apply).
- interest rate
- 1.99% p.a.
fixed 4 years
- comparison rate
- 2.90% p.a.
- upfront fees
- $450
- Ongoing fees
- $10.00 monthly
- Discharge Fee
- $350.00
- Extra repayments
- yes - free up to $5,000 p.a
- Redraw facility
- no
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $150,000
- maximum borrowing amount
- -
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- $3,000 cashback when you refinance your home loan to BOQ, min $250,000, 80% LVR or less. Apply before 26 February 2021, settle by 28 May 2021.
Read our Mozo Review to learn more about the Discount Fixed Rate
^See information about the Mozo Experts Choice Home Loans Awards
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